Given the following information calculate the NPV of a proposed project Cost

# Given the following information calculate the npv of

• Troy University
• ACCT 2292
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• AgentStarAlbatross9110
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40.Given the following information, calculate the NPV of a proposed project: Cost = \$4,000; estimated life = 3 years; initial decreasein accounts receivable = \$1000, which must be restored at the end of the project's life; estimated salvage value = \$1,000; net income beforetaxes and depreciation = \$2,000 per year; method of depreciation = MACRS; tax rate = 40 percent; required rate of return = 18 percent. a.\$1,137b.-\$151c.\$137d.\$804e.\$544ANS: E[MACRS table required]Project analysis worksheet:IInitial investment outlay1) Cost(\$4,000)2) Decrease in NWC1,0003) Total net investment(\$3,000)IIIncremental operating flows:Year:0 1 2 4) EBT and depreciation2,000\$2,000\$2,0005) Earnings after taxes (line 4 ×0.6)1,2001,2001,2006) Depreciation (from table)1,3201,8006007) Tax savings from depreciation(5 × 0.429528720240 3 228 Chapter 10     Project Cash Flows and Risk8) Net operating flows(line 5 + 7)\$1,728\$1,920\$1,440IIITerminal cash flow:9) Estimated salvage value\$1,00010) Tax on salvage value((1,000 - 280) ×0.4)(288)11) Return of NWC(1,000)12) Net CF(\$ 288)IVNet cash flows:13) Total net cash flows(\$3,000)\$1,728\$1,920\$1,152Financial calculator solution:Inputs: = -3000; = 1728; = 1920; = 1152; I = 18.Output: NPV = \$544.46 \$544. DIF: Medium OBJ: TYPE: Problem TOP: New project NPV 41.Mars Inc. is considering the purchase of a new machine which will reduce manufacturing costs by \$5,000 annually. Mars will use the MACRS accelerated method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for \$10,000. The firm expects to be able to reduce net working capital by \$15,000 when the machine is installed, but required working capital will return to the original level when the machine is sold after 5 years. Mars' marginal tax rate is 40 percent, and it uses a 12 percent required rate of return to evaluate projects of this nature. If the machine costs \$60,000, what is the NPV of the project? Chapter 10 229 5 DIF: Medium OBJ: TYPE: Problem TOP: New project NPV  #### You've reached the end of your free preview.

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